American Airlines and US Airways will merge

In this Feb. 7, 2013, photo, a US Airways jet taxis past an American Airlines jet parked at the gate at Sky Harbor International Airport, in Phoenix. (AP Photo/The Arizona Republic,Tom Tinkle )

DALLAS >> American
Airlines and US Airways will merge and create the world's biggest
airline. The boards of both companies approved the deal late today,
according to four people close to the situation.

The carrier will
keep the American Airlines name but will be run by US Airways CEO Doug
Parker. American's CEO, Tom Horton, will serve as chairman of the new
company until mid-2014, these people said. They requested anonymity
because the merger negotiations were private.

The merger caps a
turbulent period of bankruptcies and consolidation that will leave the
U.S. airline industry dominated by four big carriers — American, United,
Delta and Southwest. Together they would control almost three-quarters
of U.S. airline traffic.

The deal has been in the works since
August, when creditors forced American to consider a merger rather than
remain independent. American has been restructuring under bankruptcy
protection since late 2011. AMR creditors and possibly its shareholders
will own 72 percent of the stock, and US Airways Group Inc. shareholders
will get the rest, three of the people said.

A formal announcement is expected Thursday morning.

If
the deal is approved by American's bankruptcy judge and antitrust
regulators, the new American will have more than 900 planes, 3,200 daily
flights and about 95,000 employees, not counting regional affiliates.
It will be slightly bigger than United Airlines by passenger traffic.

Travelers
on American and US Airways won't notice immediate changes. It likely
will be months before the frequent-flier programs are merged, and
possibly years before the two airlines are fully combined.

When
that happens, American's presence will grow in key East Coast markets
including New York's LaGuardia Airport and Washington's Reagan National
Airport. The merger will add US Airways hubs in Charlotte, Philadelphia
and Phoenix to American's in Dallas-Fort Worth, Chicago, Miami, New York
and Los Angeles.

US Airways would boost American's service to
Europe and the Latin America-Caribbean market but wouldn't fix
American's weakness on routes to Asia.

Just five years ago,
American was the world's biggest airline. It boasted a history reaching
back 80 years to the beginning of air travel. It had popularized the
frequent-flier program and developed the modern system of pricing
airline tickets to match demand.

But years of heavy losses drove
American and parent AMR Corp. into bankruptcy protection in late 2011.
The company blamed bloated labor costs; its unions accused executives of
mismanagement.

The merger is a stunning achievement for Parker
and his management team at US Airways, based in Tempe, Ariz. Just a few
years ago, they were running a mid-sized carrier called America West
Airlines when they bought the old US Airways out of bankruptcy.

Parker's
airline is only half the size of American and is less familiar around
the world, but he prevailed by driving a wedge between American's
management and its union workers and by convincing American's creditors
that a merger made business sense.

Despite its smaller size, US Airways has prospered in the last several years, earning a record profit of $637 million last year.

"They've
done an absolutely terrific job with what they have," said Bill
Swelbar, an airline-industry researcher at MIT and board member of
Hawaiian Airlines' parent company.

Parker began pursuing a merger
almost as soon as AMR filed its Chapter 11 petition. He found willing
partners in American's three labor unions, who have long fought with
management at their own company over pay, work rules and executive
bonuses. American suffered strikes by pilots and flight attendants in
the 1990s. Bad feelings hardened in the early 2000s, when union workers
took pay cuts to keep the company out of bankruptcy while AMR gave
bonuses to management employees when the stock price rose.

AMR's
Horton professed no interest in thinking about a merger until his
company was out of bankruptcy court, but his creditors pressured him to
reconsider. AMR lost more than $12 billion between 2001 and 2010. It has
lost another $2.8 billion since it filed for bankruptcy protection in
November 2011 — a period in which US Airways earned about $650 million.
Some analysts and creditors called for new management at AMR.

Bob
Herbst, a financial analyst who studies airlines, said AMR has failed to
adapt to changes in the industry since consolidation began in the
middle of the last decade. He said AMR was fixated on gaining market
share rather than on profitability.

American ranked 14th out of 15
airlines in government rankings for on-time performance in 2012 (US
Airways was fifth). Only United had a higher rate of complaints (but US
Airways was barely better than American).

"They are continually at
the bottom in on-time and customer service, and they're losing more
money than anyone else," Herbst said. "American's management is leaving
because that's what needs to happen."

AMR, however, has made
measurable progress under Horton, who became CEO the day before the
company filed for bankruptcy protection. The company earned operating
profits in the second and third quarters of 2012, and its revenue for
every seat flown one mile — an arcane-sounding statistic but one that is
closely watched in the airline business — rose faster than at its
rivals for much of the year. With leverage from bankruptcy laws, AMR won
new union contracts with lower costs.

"I'm a big fan of Tom's;
he's done a great job," said Mike Derchin, an analyst with CRT Capital
Group. "He restructured the balance sheet, made the company more
efficient and got a pilots' contract. He positioned the company for the
future."

That performance may also have gotten a better deal for
Horton's creditors. US Airways' initial proposal called for AMR
creditors to get only 49 percent of the stock in the combined company,
according to people familiar with the talks. Instead, they'll get 72
percent, although they might have to share some of that with
shareholders, said the people familiar with the deal.

In recent
weeks, AMR won bankruptcy court approval to buy hundreds of new planes
from Boeing and Airbus, an important step to reduce fuel costs and offer
a more comfortable experience for passengers. American even unveiled a
new logo and paint job for its planes, although the reviews were mixed.

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iwanaknowwrote:

Don't worry, where you are number one, all airfares will go up and up.